Omnicom, Publicis call off $35B merger

Maurice Levy, chief executive officer of Publicis Groupe SA, left, and John Wren, chief executive officer of Omnicom Group Inc., shake hands after signing the merger deal during a news conference at the Publicis headquarters in Paris, France, on Sunday, July 28, 2013. Publicis Groupe SA and Omnicom Group Inc. agreed to merge in an all-stock transaction to create the world's largest advertising company with $23 billion in revenue, toppling market leader WPP Plc. (Balint Porneczi / Bloomberg)

Publicis Groupe and Omnicom Group announced late Thursday that they have terminated their proposed $35 billion merger by mutual agreement.

The parties have released each other from all obligations, and no termination fees will be payable by either company.

"The challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups and their employees, clients and shareholders. We have thus jointly decided to proceed along our independent paths. We, of course, remain competitors, but maintain a great respect for one another."

The advertising holding companies have scheduled a conference call for Friday at 7:30 a.m.

The deal, struck in July, would have created the world's largest advertising holding company. Regulatory hurdles and reported behind-the-scenes issues had delayed the closing, fueling recent speculation that the deal was in jeopardy.

Bringing together New York-based Omnicom Group and Paris-based Publicis Groupe would have greatly affected the Chicago advertising market.

Chicago-based Leo Burnett is part of Publicis, as is Digitas Chicago. DDB Chicago and Energy BBDO are part of Omnicom. Chicago-based Starcom MediaVest Group, the world's largest media buying agency, is also part of Publicis.

Putting five major Chicago ad agencies under one holding company could have meant everything from market consolidation to increased leverage. Like their parent companies, those agencies will remain competitors, under separate corporate umbrellas.

The proposed Publicis-Omnicom merger would have a created a company whose combined 2013 revenue reached nearly $24 billion, according to Ad Age. It would have surpassed London-based WPP as the world's largest advertising holding company.

Last summer, the companies said the transaction would generate the necessary scale to deal with technology changes that have challenged the advertising business in recent years.

Additionally, the companies said the transaction would have generated $500 million in efficiencies. As it is, jointly ending the deal avoided a $500 million termination fee.

One source familiar with the matter said broader cultural differences between the two companies proved to be too difficult to overcome as tension over leadership and strategy came to a head.

The boards of the two companies met Thursday to unwind the deal, another source said.

The sources requested anonymity because they are not authorized to discuss the matter publicly.

The merger called for a 50-50 ownership split of the equity in the new company, Publicis Omnicom Group, with Wren and Levy serving as co-CEOs for 30 months from the closing.

A source said that "big egos" were involved.

The crucial choice of chief financial officer, a key position that would determine how the company would operate, hewing either to Publicis' centralized structure or Omnicom's less controlling approach to subsidiaries, had been a particular sticking point as the months dragged on.

As the companies struggled to keep the merger on track, they had faced a fight to retain clients and talent.

Wren and Levy, celebrating the deal with Champagne toasts in Paris last summer, said it would enable them to better compete with the likes of Google and Facebook, which dominate digital advertising.

Digital advertising continues to take dollars from traditional media and now represents about 25 percent of the total ad spend worldwide, according to eMarketer.

In after-hours trading, Omnicom shares were down $1.80, or nearly 3 percent, to $64.40. Publicis shares had closed up 0.6 percent in Paris before the news.